RISK ASSESSMENT

Activity recovered ground in 2018, though some downside risks might materialize in 2019

GDP reported a bright improvement in 2018, after a 2017 marked by strong floods triggered by El Niño and by the suspension of public investment due to corruption scandals. Activity growth was also spurred by robust domestic demand. Investments rebounded, both private and public, backed by a stronger political environment. In addition, household consumption also gained strength on the back of a controlled inflation and accommodative monetary policy.

Activity should observe a similar rate of growth in 2019. Terms of trade should stay close to the levels of 2018, supporting exports and investments in the sector. In parallel, household consumption is expected to remain strong thanks to still favourable inflation and monetary policy. However, there are some downside risks related to the external scenario: namely, an escalation in the trade dispute between the United States and China (the two main destinies of Peru’s exports) and a stronger tightening in US monetary policy. While there are some new domestic political tensions, a possible further escalation, should not cause strong impact in economic activity, as there is a broad consensus on pro-business polices in the country.

Strong external and fiscal positions

While most Latin American currencies depreciated in 2018 due to a shift in investors’ mood towards emerging markets, the novo sol has remained broadly stable thanks to the country’s sound external position vis-à-vis its peer economies. In the past two years, Peru has registered low deficits in its current account, driven by stronger trade surpluses due to improvements in terms of trade. In addition, the low external imbalance has been comfortably covered by FDI. Moreover, the country’s international foreign exchange reserves are among the highest in the region relative to GDP, at 29.5% as of the end of 2017.The dollarisation of the banking system has fallen over the last decade to 29% of credit and 32% of deposits at July 2018 from 51% and 46%, respectively, at December 2008.

Peru also has low levels of public debt, thanks to the prudential fiscal policy in force since the start of the commodities super cycle back in the early 2000s. The government of President Vizcarra has started fiscal consolidation, reducing the non-financial public sector budget deficit targets for 2018 and 2019.

The new President advances in the fight against corruption, although investigations into new cases continue

President Pedro Pablo Kuczynski (PPK) of the centre-right Peruvians for Change party delivered his resignation in March 2018. Facing his second impeachment vote in three months, PPK’s resignation was triggered by newly-discovered evidence of corruption with the Brazilian construction group Odebrecht.

As per the local Constitution, First Vice-President Martín Vizcarra (from the same party) took office. Responding to the widespread anger due to the corruption scandals, he has assumed a harder line with the opposition-run Congress (where the conservative party Popular Force has a majority). He has threatened to invoke a constitutional procedure to dissolve the house if it fails to grant him a vote of confidence to advance with four constitutional reforms to combat graft. In early October 2018 the Congress approved the legislation, representing a victory to the government. A referendum on the reforms was held on December 9.

However, a new escalation of political tensions is possible: in September 2018, the Attorney General reopened a corruption investigation into the failed contract of an airport, which had led Mr Vizcarra to resign as Transport Minister in May 2017. Moreover, in October 2018, Keiko Fujimori, leader of Fuerza Popular (opposition party with a large majority in Congress), was detained over allegations of illicit campaign contributions. In addition, while Ms Fujimori’s popularity has declined in recent months due to the scandals, her party is likely to continue using its power in Congress to oppose President Vizcarra.

Last update: February 2019

Payment

Electronic payment is prefered for both high-value and low-value transactions. Post-dated cheques are commonly issued in Peru. Credit transfers are used for both high-value and low value payment transactions. The majority of low-value electronic credit transfers in Peru continue to be made between accounts in the same bank, known as intrabank or “on-us” transactions. Bills of exchange are a commonly used payment instrument for debt collections.

Debt collection

The Peruvian judicial system is structured hierarchically. The Corte Suprema (Supreme Court) is the highest court, followed by courts that specialise in civil law, criminal law, constitutional law and labour law. These sit above the Corte Suprema in each judicial district, which deal with civil and commercial law cases. The Juzgados Especiales (specialised judges) are located in major cities in the country and deal with matters concerning, among others, civil and commercial law. Following this is the professional Juzgados de Paz (peace judges), located in major cities, and in charge of low economic value cases and other minor issues. Finally, Cortes de Paz (peace courts) are located in cities with lower populations, comprised of one judge who may or may not have the status of lawyer.

Amicable phase

The amicable phase in Peru is characterised by phone calls, written reminders, visits, and meetings, with the goal of settling the debt between two parties without triggering legal proceedings.

Legal proceedings

Conciliation Proceedings

Prior to judicial proceedings, Peruvian law requires of a conciliation process in order to reach a debt settlement agreement. The process constitutes two hearings, if an agreement cannot be reached, the proceeding ends, and both parties have to sign a conciliation act, which is then presented at the beginning of the judicial process.

Fast-track proceedings

The below text makes reference to the Unidad de Referencia Procesal (Unit of Procedural Reference), which is a reference value according to Peruvian law: each URP is 10% of the Unidad Impositiva Tributaria (UIT), which can be used in tax regulations to determine tax bases, deductions, limits of affectation and other aspects of taxes that the legislator deems appropriate. It may also be used to apply sanctions and to determine accounting obligations, The UIT is set at the beginning of the year by the Economic Ministry.

Two fast-track proceedings are available in Peruvian law:

simplified proceedings (proceso sumarisimo) concern cases which the value is below URP 100. Juzgados de Paz have jurisdiction for amounts between URP 50 and 100. Defendants have five days to file a dispute after they received the notification from the judge. Within 10 days, the judge organises hearing for discovery, conciliation, evidence and judgment;

shortened proceedings (proceso Abreviado) concern cases in which the value is between URP 100 and 1,000. Juzgados de Paz have jurisdiction for amounts between URP 100 and 500 and Juzgados Civiles have jurisdiction in cases for amount above URP 500. The defendant has 10 days to file a dispute from the admission of the petition by the judge. Discovery and conciliation will be examined during one hearing. If the conciliation was not successful, the judge mentions the disputed points and evidence to be provided or updated. Within 50 days of the conciliation hearing, the judge sets up an evidence hearing.

Executive proceedings

When creditors are owed an undisputed and certain debt, they can start executive proceedings. The debtor has five days from the notification to submit his defence. The judge will render a judgment, after which each party has up to three days to file anappeal.

Ordinary proceedings

Ordinary proceedings apply to cases with a value of over URP 1,000. The plaintiff sends a written petition to the court. The defendant can file a defence expressing the facts on which he intends to argue, within 30 days from the service of the writ. If the claim is complete (i.e. includes all the relevant information), the judge sets up a hearing for conciliation. If the parties reach an agreement, it has the same effect as a judgment. If an agreement is not reached, the judge organises a hearing within 50 days of the conciliation hearing. The proceedings end when the judge delivers his or her decision. The length of proceedings depends mainly on the nature of the conflict, the number of parties involved, the complaints that occur, and the caseload of the judge in charge of the process. Based on these criteria, a first-instance judgment in a typical commercial litigation case may take approximately twelve to 18 months.

Enforcement of a Legal Decision

A domestic judgment becomes final and enforceable once all venues for appeal have been exhausted. The first instance judge is in charge of enforcing judgments, and will issue a writ of execution ordering the relevant party to comply with the judgment within five working days. If the order is not complied with during the five-day period, the judge must order the seizure of the debtor’s assets in order to sell them at auction. For foreign awards, creditors located in Peru must file a claim before the Superior Court located in the debtor’s place of domicile. The Court will consider whether the foreign judgment is compatible with Peruvian law and any international treaties between the two countries. If it is found to conform, the judge shall authorize the enforcement of the judgment in the Peruvian Jurisdiction.

Insolvency proceedings

The Instituto Nacional de Defensa de la Competencia y de la Proteccion de la Propriedad Intelectual (INDECOPI) is the specialized administrative agency that deals with insolvency proceedings.

Out-of-court proceedings: preventive proceeding

Preventive proceedings aim to provide a forum for debtors to reach a consensual restructuring agreement with their creditors. It is intended to be a fast track process that only debtors can initiate.

Reorganisation

If creditors decide to allow their debtors to restructure, they will be asked to approve a reorganisation plan within 60 days from the decision to proceed with reorganization. Both the decision to reorganise and the organisation plan must be approved by more than 66.6% of the allowed creditor claims. During the process, creditors decide whether to allow the debtor’s management, to continue operating the business, or to replace the debtor’s management. Once the reorganisation plan is approved and all the pre-publication claims are paid according to their terms, then INDECOPI grants a decision declaring the formal conclusion of the reorganization proceeding.

Liquidation

If the creditors decide to liquidate, then a liquidator will be appointed at the Creditors’ Meeting from the list registered with INDECOPI. The will be asked to approve a liquidation plan for the debtor and decide whether the debtor should be authorized to continue its business during the liquidation. Whether voluntary or involuntary, the liquidator must follow a mandatory order in the payment claims. To conclude the liquidation process, the liquidator files a petition before the Public Registry in order to register the extinction of the company. However, if creditors remain unpaid, then the liquidator must file a petition before a civil judge to obtain a judicial bankruptcy declaration.